Gold climbs 0.5% on weaker dollar even as interest rate hikes loom

Gold prices rose on Monday as a softer dollar rekindled some of bullion's appeal for overseas buyers, although the prospects of sharp interest rate hikes by the U.S. Federal Reserve and other major central banks capped further gains.

Spot gold was up 0.5% at $1,667.89 per ounce, as of 0603 GMT. U.S. gold futures were 0.2% higher at $1,675.30.

The dollar index was down 0.4% against a basket of currencies, making greenback-priced bullion less expensive for overseas buyers. Benchmark U.S. 10-year Treasury yields were also lower after rising for two days. [USD/]

"Recovery (gold's) seems to be more of a near-term moderation from oversold technical conditions, as no slack in Fed's tightening policies may suggest that any upside could potentially be sold into," IG market strategist Yeap Jun Rong said.

The Federal Reserve's No. 2 official on Friday added her full endorsement of the U.S. central bank's higher-for-longer game plan for interest rates to curb inflation.

Last month, the Fed raised its policy interest rate by 75 basis points, its third straight increase of that size, and signalled more large hikes to come this year.

Gold posted its sixth straight monthly decline in September, marking its longest streak of monthly losses in four years.

Though gold is often seen as a hedge against inflation, rising U.S. interest rates increase the opportunity cost of holding the non-yielding asset and boost the dollar.

Meanwhile, euro zone inflation hit a record high last month, reinforcing expectations for another jumbo rate hike this month from the European Central Bank.

On investors' radar are the U.S. non-farm payrolls data due on Friday and a host of manufacturing PMI data for insight into the health of the global economy.

"A more lukewarm (payrolls) reading may be preferred by gold bulls for a relief rally, but the absence of any pause in Fed's policies could still suggest that the overall downward trend may remain intact," IG's Yeap Jun Rong said.

Spot silver climbed 2.3% to $19.44 per ounce, platinum rose 0.6% to $864.45 and palladium was up 0.5% at $2,169.19.

 

(Reporting by Eileen Soreng in Bengaluru; Editing by Sherry Jacob-Phillips and Subhranshu Sahu)